Buying A Home
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Home improvement loans

Tell me about your experience with home improvement loans -- did you use the same bank, what was the approval process like, what rates did you get?

We estimate that we want to add about $30,000 in improvements to our new house (including gutting the kitchen, recarpeting/refinishing the floors and painting). We could pay cash but that on top of the down payment would leave us with limited savings. DH is thinking of maybe financing at least half of it, so just curious what your experiences have been and what to expect.
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Re: Home improvement loans

  • I have never done this before so I could be wrong on this part but I believe they will not give you more money then the house is worth.

    If your loan for the cost of the house is for close to the appraisal value they probably won't give you a loan for repair work on the house.

    The most beautiful things in the world are not seen nor touched. They are felt with the heart. -- Helen Keller Daisypath Anniversary tickers
  • Have you already closed on the house? If not, you should ask your lender about doing a 203K streamline loan. If the improvements will cost less than $35,000 it might be an option. Like PP said, they won't lend you more than what the house would be worth with the improvements.

    There is a LOT of paperwork involved and you have to find contractors who are willing to be paid several weeks after they complete the work. You'll want to ask them if they're willing to work with a 203K loan for payment. 

    We looked into doing this with one house, but it needed more than $35K plus our cash reserves. If the amount is more than that then you end up in a regular 203K which requires a special contractor and all kinds of crazy hoops to jump through. 

    The option that will be the least hassle will be to do some of the work with your savings and some of the work with a 203K streamline. I think if you take under a certain amount (I want to say $12K) out from the streamline they skip some of the paperwork.

  • The house appraised for the purchase price (and, no, we haven't closed yet.) But the kitchen is totally outdated -- it would almost certainly appraise for more with a new one. Would that make a difference?

    So far it sounds like cash may be the way to go, and just do the minimum work we need to move in.
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  • image Nechie122:
    The house appraised for the purchase price (and, no, we haven't closed yet.) But the kitchen is totally outdated -- it would almost certainly appraise for more with a new one. Would that make a difference?

    So far it sounds like cash may be the way to go, and just do the minimum work we need to move in.

     Have you been there less than 12 months? I assume so but just wondered.  We bought last June and spent approx $30k in cash to do similar renovations (plus electrical and plumbing). I just reached out to our lender to see if we could either refi to a lower rate and cash out some equity to finish our one large remaining project or to get a heloc.  He said since the housing bubble burst, if you have lived there for less than 12 months than your "apprised price" will be your purchase price plus any documented renovations at cost.  So to make a long story shorter, you won't have any equity to get a loan against for the first 12 months you love in a home regardless what the actual apprisals is.  

    So it sounds like you might be best to use your cash.  We also found a 0% credit card just so we didn't spend every penny of our money.  We'll pay off the card before the 0% expires but it makes me feel better to use our monthly cash flow to pay that off and not touch the remaining savings we have. 

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  • Cash is going to be a lot less of a headache, and it's probably better not to finance more in the long term anyway. Not sure how close to Jersey you are, but there is a company called solidwoodcabinets.com here that has really nice stuff and does financing. Their prices are great and we were impressed with the quality in the showroom.
  • Outdated kitchen?  As long as it is safe and functions, I would save and wait unti you have the cash in hand .
  • What kind of loan are you getting? I know FHA offers a 203k (I think it is called) that finances your improvements along with your purchase. Your appraisal will be based on the after improved value.
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  • Edited by moderator.

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